|Stocks & Mutual Fund Information|
What is the Most Important Indicator of All?
Most stock market traders have a favorite technical indicator.
The one that they have the most confidence in. The one that, from experience, they trust the most. Or the one that they always look at first.
For some it is the RSI. Others like the Stochastic or the MACD . Or one of the literally hundreds of other indicators that are available.
Well, I love the MACD. And the Stochastic is also a favorite.
But there is one indicator that I refer to more often than any other. However, before I tell you what it is, it is important that this discussion is placed in context.
I always stress with the traders that I mentor that the most important part of your analysis is price action.
By this I mean that the very first thing you should look at is the shape of the stock's chart. And any patterns that you may be able to identify.
In particular, look for trends and consolidation. Candlestick reversal patterns and support and resistance levels. And be particularly aware of all time or 52-week highs or lows.
Also, be on the lookout for double tops and bottoms and triangles and head and shoulder patterns.
Because it is only in the context of the basic price action that you can make your trading decisions. And it is only from this understanding that you should begin to apply your technical indicators.
So, establish the context for your further analysis. Indeed, use this first process as a screening device.
Because, unless the chart immediately "speaks" to you, you should eliminate the stock from any further review.
What I mean by this is that unless there is a clear reversal pattern or potential for a breakout, move on. Don't waste time analyzing charts that have no likelihood of immediate movement.
And one of the best patterns for short-term trading is the channel. Always keep an eye out for these and when you find one, give serious consideration to trading them. Now, let's get back to our earlier discussion. What is the most important indicator?
Well, whilst this might surprise some of you, I believe it is volume.
You see volume is an indication of the strength of price action. A market needs high volume or increasing volume to sustain a movement in price.
So we want to see volume moving in the direction of the price. Increasing both in an uptrend and also a downtrend.
But realize that it takes more effort to push prices higher than it does to cause them to drop. So increasing volume is more significant in an uptrend than a downtrend.
If volume is diverging from the trend [going down instead of up] then we would normally not carry out any further analysis. Because the lack of volume means that there is a lower probability of price movement in the direction of the current trend.
Note however, that divergence can be an indication that a trend is about to end. So this can be an early sign of a reversal.
Another important aspect to volume that is often overlooked is in regard to retracements. Because the volume during retracements gives us a significant indication of the strength of the overall trend.
A strong uptrend should have higher volume on the upward legs of the trend and lower volume on the downward or corrective legs. Similarly in a downtrend.
Volume is best plotted below your chart as a histogram, or series of vertical lines.
And it helps to add a moving average line over the histogram to smooth the volume readings. I use a 3 day MA but you can experiment to see what works best for you.
But most importantly, always consider volume before entering a trade.
David Chandler For free mini-course on stock and options trading click the following link: http://www.StockMarketGenie.com http://stockmarketgenie.blogspot.com/ Ordinary People Making Extraordinary Profits! The above comments are offered for educational purposes only. We are not providing you with financial advice. We are simply sharing with you what has and hasn't worked for us personally. If you wish to trade or invest in the stock market you should obtain advice from a registered licensed advisor.
There are formulas for just about everything, but it has been shown that the simpler the formula or method of doing a particular task the better it works. It has evolved down to KISS ? Keep It Simple Stupid.
How To Buy And Hold
One of the most believed bits of conventional wisdom from Wall Street is to Buy and Hold. Any stock or mutual fund should be put away for eternity and never sold. This is total hogwash and is guaranteed to reduce your investment income.
Are you paying any attention to your retirement savings? Do you have it in cash or an account with a broker? Maybe you have a professional manager who is investing your money as you add to it every month.
Whenever I see mutual fund comparisons in the trade publications and in the financial section of the newspaper they almost always mention a specific fund and tell you how good it is in relation to its peer group. A peer group is a specialized sector of mutual funds that all invest in about the same type of stocks or areas of the world or size of companies or some such categorization.
Does Japan Matter?
For the last 12 years we have seen the Japanese stock market slowly sinking from a high of 38,000 to about 8,000, more than a 75% loss and very close to the price of the Dow Jones Industrial Average. Why should we care about their stock market?
What the Hell is a Stock option?
A 'stock option' is a contract between two parties giving the buyer (also known as the 'taker') the right, but not the obligation, to either buy or sell a specific quantity of shares at a pre-agreed price (known as the 'strike price' or 'exercise price') by a certain future 'expiry' date. There are two different types of options that can be traded, known as 'call options' and 'put options'.
I Love To Lose Money
Well, not really. What I mean is I don't mind losing a small amount when I have to sell a stock or mutual fund that is going down or taking away the profit I have made. During this past 3 years I have made money each year because I was not afraid to sell. The great secret that Wall Street does not want investors to know is all about selling, not buying.
Selection Vs Direction
As I have said many times before in this column it really doesn't make any difference what you buy ? stocks, funds or indexes - it takes smarts to know when to sell. Direction of the general market is more important than selection of any equity.
Making Outsized Returns in the Stock Market - Using the Dow Theory
During our travel down life's path we come to many places where the trail divides and we must make a decision. Some involve psychological (emotional) choices ? marriage, divorce, leaving home, career changes, etc. Others are monetary ? buying a new car, home, starting your own business, investing, etc. Many are interwoven having aspects of both psychological and monetary.
What Our Investment Advisor Wont Say Off The Bat
Most advisors will tell you they can beat the market. They may even point to years in which they did. But now you will learn the little known fact that is seldom mentioned outside the financial world. It is very, very, VERY DIFFICULT TO BEAT THE MARKET.
Picking Mutual Funds to Outperform the Market
With over 6,000 mutual funds available, it may be tempting to pick funds from a popular star or index rating system. Savvy investors, however, balance multiple factors in their selection process. Ratings represent only the historical performance of funds and cannot predict the future. Performance consistency, management skill, and expense limitations are among the many factors that influence a fund's prospects. Each must be carefully evaluated to improve your chances of finding a fund to outperform the market.
Low Expense Ratio
One of the big advertising kicks today from mutual funds is to tell how low their expense ratio is and that you will make a great deal more money if you buy and hold with them. Partly true, but that is not the whole story.
Dispelling Illusions of the Stock Market
How can you dispel an illusion unless you look directly at it? The magician distracts the eye with one hand while he does his manipulation with the other. You are looking in the wrong place and not seeing what is actually happening.
Why the Majority Fail at Stock Investing
The gleam and bright lights of Wall Street lure in many new investors each year, only to send them home crying to their friends and family. Why do so many people fail when it comes to the stock market? The reason is very simple: Hard work! Most people are looking for a quick buck or a fast path to riches. This is not the case when it comes to investing in individual stocks. If you wish to invest in stocks, treat it like a business, NOT A HOBBY. For example: A retail outfit can't make money if it doesn't have goods to sell, the same goes for investors, without cash, you can't invest. What do I mean? All investors need rules and you need to follow these rules or money WILL be LOST. If you lose your initial investment, you are out of business (just like the retail store). I don't necessarily care what your rules are but they need to be proven and then followed to a "T".
Bargain Basement - Finding Stocks That Go Up
Have you been listening to the talking heads on CNBC-TV? Or those talk radio stock experts? Getting all those good recommendations on what to buy now. Now?
Buying New Issues
Has your broker been calling you recently with the "great opportunity" to get in on a new Initial Public Offering? With friends like that you don't need any enemies.
Stocks & Oil, Sat Jun 18th, 2005
Both the stock market and oil prices rallied recently, which seems to be a paradox, because high oil prices are negative for earnings (i.e. a higher production cost and a higher consumer tax). However, the stock market was worried about another "soft patch," of slower economic growth, and the sharp rise in oil prices suggest the U.S. economy is still expanding at above trend growth.
Big Buildings Can Mean Big Economic Disaster
AS BUILDERS BEGIN WORK ON THE FREEDOM TOWER in New York City, to be the world's tallest building, economist Mark Thornton offers a history-based theory of the relation between super-buildings and the economy. Thornton surveyed economic performance worldwide following the completion of each of the world's tallest skyscrapers, and suggests what these events foretell.
What To Buy Now
I am sure that if you have a brokerage account with a "full service" broker you have been getting calls about what to buy and sell. If you have big losses in certain stocks you might be hit with that great Wall Street lie to buy more so you can 'Dollar Cost Average'. It doesn't work.
|home | site map|